Multiple employer plans (MEPs) especially open MEPs have been a
hot topic since the Department of Labor issued an advisory opinion that a
specific Open MEP wasn’t a single plan for Form 5500 purposes. It looks like
Congress may pass legislation allowing Open MEPs to be treated as a single plan
again.
If you need to speak
to a MEP expert, you probably can’t find anyone better than
Terrance Power of The Platinum
401(k).
Q; How did you get involved in the retirement plan business?
A: I started in the
industry in 1981 as a retail stockbroker in Buffalo, New York. I worked for
Dean Witter Reynolds and later The New England in their Florida West Coast
regional office. I joined Manulife Financial (now John Hancock) as a retirement
plan wholesaler in 1990 servicing advisers and their clients across Florida for
ten years. When I left Manulife in 2000 to set up American Pension Services, I
terminated my Series 7, 24, and 63 licenses as we don’t compete with advisers…..we
work with them. I remain the CEO/President of American Pension Services as well
as the owner of The Platinum 401k, Inc., our “Open MEP” side of our business.
Q: How did you get involved with multiple employer plans (MEPs)?
A: I’ve often stated that
we are “experts by proximity” with multiple employer plans. The employee
leasing industry (now known as the PEO industry) had its roots in West Central
Florida in the mid-1980’s. That industry experienced tremendous growth and has
given us over 25 years of hands-on knowledge about multiple employer
plan
clients. In 2002, the IRS issued regulations that required PEO’s to move to a
multiple employer plan format for their client companies (adopters). As such,
our services moved full speed into that structure as well. We were one of the
first major non-producing third party administrators to carve a niche in that
marketplace. We still service several large PEO plans to this day.
Q: Open MEPs were a very popular vehicle until Advisory Opinion
2012-04A issued by the Department of Labor where they claimed an Open MEP such
as the one in question wasn’t a single employer plan. How did that advisory
opinion affect your business and the Open MEP industry?
A: The Advisory Opinion
led many advisers and consultants to come to the conclusion that “MEPs are
bad”. This was obviously a mistake, as the advisory opinion finally cleared up
some pretty grey areas for those of us in the industry. Remember also that the
IRS view of MEP’s did not change a bit……just the DOL’s opinion of certain
aspects of how they are handled.
The Advisory Opinion
stated that the DOL would treat each adopting employer as a separate plan
sponsor…..meaning that each would have to file their own Form 5500, secure
their own ERISA bond, and have an annual plan audit if the size of the plan
mandated it. The ERISA bond cost was minimal, and since we’re a TPA, generating
separate Form 5500’s was little more than pushing a few more buttons (we were
already required under the MEP rules to test each plan separately). The Plan
Audit cost was probably the biggest change, as they would have been avoided
under the previous interpretation of the law. Even if a plan did require an
audit, within our MEP clients have seen a dramatic cost reduction of as much as
40%.
Incidentally, after the
advisory opinion was released we conducted a review of all of our adopters. We
found that nearly 80% of them were not subject to an annual audit as they had
less than 100 participants. That indicated that most of our adopters didn’t
join our program to “dodge the audit”…..they joined because they wanted someone
to run their retirement plan just like they run all of their other employee
benefit programs. For benefit programs such as workers compensation or health
care, employers select a provider who takes responsibility to insure that all
the internal components of the program are functioning properly and then review
the arrangement annually or more frequently. I think that’s an important point.
Q: What are the biggest arguments in favor of a MEP?
A: I think it’s about
increasing operational efficiencies while also decreasing compliance concerns
more than anything else. Clients want to focus on running their businesses, not
their employee benefit programs. Advisers have planted the seed through mailers
and cold calls that there is significant risk associated with running a
retirement plan. For many employers, the MEP solution can alleviate many of
their concerns.
Q: One of the biggest arguments against MEPs was the bad apple argument
that one bad adopting employer could affect the qualification of the entire
MEP. How would you respond to that?
A: I’ve been in the
industry for 35 years. During that entire time I’ve never seen a multiple employer plan be disqualified. Not once. If there is a problem
identified with an adopter in our program, we have total discretionary
authority to spin that adopter out to a stand-alone plan immediately. At that
point we could deal with any major issue and also isolate the problem.
The proposed legislation
moving rapidly through the U.S. Congress via the Senate Finance Committee
eliminates this issue completely, by the way. The new Pooled Employer Plan
(PEP) legislation, once signed into law, will go into effect for plan years
starting after December 31, 2019. We’re already beginning the conversion
process for our MEP clients, by the way. More information will be available
after the bill is signed at www.MEP2PEP.com.
Q: Some claim that Advisory Opinion 2012-04A contradicts the Internal
Revenue code on treating a MEP as a single plan. Why didn’t the DOL make any
further rulings rather than an advisory opinion for a single plan?
A: That would be a really
good question to pose to the DOL. There were many of us in the industry that
were left scratching our heads after the Advisory Opinion came out. I don’t
have a good answer for that one.
Q: The Senate seems intent on allowing Open MEPs, do you think this is
going to happen?
A: It appears that it’s
only a matter of “when” at this point. The Pooled Employer Plan proposal looks
great from our end. We are fortunate to already have more than 5 years of
actual operating experience in our Platinum 401k Open MEP product. I think our
experience and unwavering commitment to this market gives us a huge competitive
advantage and will help to continue to position us as an industry leader going
into the next decade.
Q: How do you think the new fiduciary rule will impact the MEP
business?
A: The new fiduciary rule
will impact every aspect of what we and advisers do beginning next April. We
expect to be much more involved in making provider recommendations as we
already act as a fiduciary. The MEP/PEP business will become a fiduciary
solution for advisers and brokers who don’t want to be fiduciaries. Our program
solves many of the challenges around the new rule and provides a retirement plan solution for fiduciaries would prefer not to be fiduciaries.
Q: Matt Hutcheson was an independent fiduciary who was sentenced to 17
years in federal prison for embezzling money from MEPs he controlled. Did that
negatively affect your business and do you think it had any impact with the DOL
on their advisory opinion on Open MEPs?
A: It didn’t really impact
our business. Every year the Department of Labor issue 50 or so press releases
that list plan fiduciaries who have either misappropriated monies, breached
their duties, converted plan assets for their own use, and dozens of other
prohibited transactions. 95% of the plans having these issues are single
employer plans. May be more. Crooks come in all flavors. Mr. Hutcheson just
happened to choose a MEP as the vehicle to loot for his own benefit. It could
just as easily have been a defined benefit plan, target benefit plan, ESOP, or
any other type of plan. I believe that the timing of his arrest and subsequent
conviction may have influenced the actions of the DOL, but we have no way to be
certain.
Q: The DOL under President Obama through fee disclosure and the
fiduciary rule is pro-participant, do you think the way they handled Open MEPs
is the one thing they got wrong?
A: I politely disagreed
with the DOL’s position in the Advisory Opinion, but then again I’m not
occupying an office at 200 Constitution Avenue NW. I understand the rationale
behind the decision, and perhaps issuing the Advisory Opinion gave all of us a
chance to take a step back and make sure we had suitable rules in place to
expand MEP’s. I was delighted to provide testimony before the Department of
Labor’s ERISA Advisory Council in August 2014 on the subject “Outsourcing
Employee Benefit Plan Services”. The Council did an outstanding job of taking in
the testimony of several industry pros in reaching their recommendations in
early 2015. Their work helped to underscore the need for these types of
programs, which Congress is taking up and which I believe will be sent to the
White House before the end of 2016.
Q: If people want more information on your MEP expertise, where can
they find it?
A: They can always visit
us at www.ThePlatinum401k.com for more information. Our website detailing
the conversion from MEP’s over to the new PEP’s in 2019 will go live shortly
after the proposed legislation is signed into law. That website is at
www.MEP2PEP.com. We’ll be announcing that in the media, most likely in early
January.
I can also be reached by email at
tpower@theplatinum401k.com or by phone in Clearwater,
Florida at 813.774.3366 if your readers have any questions.
